Jaitley said there was a need for the banking sector to fund infrastructure and manufacturing sectors to support the ambitions of higher growth.
Amid stiff competition from private and foreign players, the country's 27 public sector banks logged 35 per cent growth in profit at Rs 16,546 crore (Rs 165.46 billion) while their bad assets fell below 3 per cent during 2003-04.
Public sector banks may be allowed to recruit talented middle-level management executives of other banks at an attractive pay package so as to improve their productivity.
The Centre on Monday said nationalised banks, which were provided equity as part of capital restructuring need not return it.
Anup Roy and Krishna Kant on the challenges the public sector banks face in revitalising themselves
Public sector banks want to pass on the increasing cost of funds to borrowers across the board, but are unwilling to take the plunge right away.
In May, MFs were the net sellers in several PSUs, as they deployed Rs 47,600 crore in equities during the month.
Global brokerage CLSA has lowered its target price for IndusInd Bank from Rs 1,200 to Rs 900 while maintaining an outperform rating on the stock after the private lender disclosed a net worth hit of Rs 1,500 crore due to an accounting gap. The revised price target still implies an upside of 34 per cent from current levels.
The government has said that public sector banks have asked for much more capital than it can give.
The government will soon finalise a reshuffle of top management teams in the country's leading 11 public sector banks (PSBs), 10 of which are listed on the stock exchanges. They include the country's third largest bank, Canara Bank, and fifth largest bank, Bank of Baroda.
A host of public sector banks had cut interest rates in the earlier part of this year following an advisory from Finance Minister P Chidambaram in January. Private and smaller state-owned banks, however, did not cut rates.
The move to make the appointment process more robust comes after last month's arrest of S K Jain, chairman and managing director of Syndicate Bank last month, over graft charges.
SBI remains a favourite of most brokerages in the PSB segment.
In a move that is likely to attract political controversy, the committee on financial sector assessment has recommended that the banking sector should be gradually opened to foreign players and that the government lower its shareholding in public sector banks below 51 per cent and allow state-owned players to merge if the Centre's stake cannot go below the prescribed lower limit.
The move comes even as Bank of India on Wednesday said its corporate clients will suffer mark-to-market losses of around Rs 125 crore. It has 34 clients with 74 derivative transactions. Last week, State Bank of India said its clients may incur MTM losses of up to Rs 700 crore at the end of March 2008.
Finance Minister Pranab Mukherjee will meet chiefs of public sector banks here on Saturday, at a time when industrial growth has decelerated to a 13-month low of 7.1 per cent and interest rates have moved northward.
Public sector banks have asked the Centre to intervene as talks with bank unions for allowing half of their employees a second chance to opt for pension instead of provident fund have reached a deadlock.
Banks, including country's largest lender State Bank of India, have informed the customers well in advance about the likely inconvenience due to strike.
Reckless lending during the three years of the retail credit boom beginning 2003-04 is hurting public sector banks hard.
Delhi International Airport Ltd, the five-company consortium led by Bangalore-based infrastructure conglomerate GMR Group that is upgrading Delhi airport, has managed to raise over Rs 1,000 crore (10 billion) to meet its financial obligations for the Rs 8,890-crore (80 billion) project.
'It's advisable not to go overboard on a banking sector fund or any other sector fund.'
Public sector banks, in a frenzy to cash in on the retail credit boom during the three years beginning 2003-04
Public sector banks have suddenly developed cold feet on raising lending rates even if it means sacrificing on their bottom lines.
The nation-wide strike call has been given by United Forum of Bank Unions, consisting of nine national level unions, including AIBEA, NCBE, BEFI, INBEF, NOBW and AIBOC.
The UFBU is an umbrella body of nine bank employees unions of the country and claims to have members from public, private and foreign banks. "We are on strike from today as Indian Banks' Association did not concede to the bank unions demand for the wage hike," said United Forum of Bank Unions convener C H Venkatachalam.
Jaitley said the government had earmarked Rs 25,000 crore (Rs 250 billion) for recapitalisation.
On government's last week's announcement of revamping of PSU banks, Fitch Ratings said the move is "credit positive, but risks remain".
A section of analysts feel now may not be a bad time to buy select PSBs.
With recruitment numbers having dropped off sharply since the liberalisation process got under way in 1991, large-scale retirements of people hired during the 1970s and 1980s will leave large gaps in the organisational structures of these banks.
"There has been (a) slowing down of credit growth... However, this slowing down of credit has indeed, to some extent, affected flow of credit in the housing sector and consumer durables sector," he told reporters after a review meeting with heads of PSU banks.
FDI rules announced last year changed the criteria of calculating these investments and included American depository receipts, global depository receipts and convertible shares also in that category.
The current employee strength of all state-run banks is about 672,000.
However, the likely impact of strike may not be much excluding few areas, said SBI.
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